A new report by the CFPB finds credit report errors go unfixed and ignored by major credit reporting bureaus.
Each year, the Consumer Financial Protection Bureau (CFPB) puts out a report summarizing the complaints it receives against the three largest nationwide consumer reporting agencies (NCRAs): Equifax, Experian, and TransUnion. In 2021, the volume of complaints was so large that the CFPB issued a special report analyzing the concerning trend, concluding that credit reporting inaccuracies drove most of the complaints and that the NCRAs only provided relief in 2% of cases.
The CFPB’s findings shouldn’t just concern consumers; businesses that rely on credit scores as part of their decision-making process ought to take notice as well.
In this article, we summarize some of the CFPB’s most recent findings, published in a January 2023 follow-up report, discuss the implications for businesses, and explore what businesses can do to mitigate the evident shortcomings of credit reporting.
Finding 1: The CFPB received more than 1 million credit or consumer reporting complaints between October 2021 and September 2022
Over the past three years, credit and consumer reporting complaint volumes have been on the rise. And while they remain elevated, according to CFPB records, the increase seems to have plateaued. That said, most of the complaints have and continue to involve accusations of incorrect report information.
1,000,000 credit or consumer reporting complaints
This trend toward inaccuracy is detrimental to the more than 200 million Americans whose access to financial services, employment, and housing is largely dependent on their credit score. And while the number of complaints received by the CFPB represents just a fraction of people with a credit file, it should be kept in mind they only capture a portion of a much larger problem.
“The volume of complaints received by the CFPB, while large, is a fraction of the volume of disputes submitted to furnishers and CRAs annually,” the 2022 version of CFPB report states. “Prior CFPB research estimated the NCRAs received millions of consumer contacts disputing the completeness or accuracy of information on their credit reports."
Finding 2: While the NCRAs are reporting greater rates of relief compared to 2020 and 2021, significant problems remain
In its 2022 report, the CFPB found that, between 2020 and 2021, Equifax, Experian, and TransUnion were not only receiving more complaints, they were closing them faster (suggesting that they were not spending sufficient time on the complaints) and resolving markedly fewer of them. In 2021, only 2% of complaints were remedied, compared to 25% of complaints in 2019.
In 2021, only 2% of complaints were remedied
The NCRAs’ failure to provide relief, the CFPB concluded, harmed consumers by keeping inaccurate information on reports longer and potentially compromising their ability to get a job or buy or rent a home.
The NCRAs’ low relief rates were largely due to their decision to ignore complaints they deemed submitted by third-parties on behalf of consumers—an egregious failure of duty under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Since then, the NCRAs appear to have changed their policies in regard to third-party complaints and are reporting greater rates of relief, leading the CFPB to conclude that there is “some evidence for cautious optimism as the NCRAs appear to have a renewed focus on responding to consumer complaints transmitted by the CFPB.”
That said, the CFPB reminds us that consumers continue to face report inaccuracies and frustrating dispute resolution processes that cost them considerable time and money, to the point that many consumers give up on rectifying problems with their report.
Finding 3: Market participants should consider how best to give consumers control over their data
The CFPB did not mince words when it identified some of the inherent problems with the consumer and credit reporting industry:
Consumer reporting issues are complicated, in part, because of the structure of the system: consumers do not choose to participate…market participants do not have ordinary competitive pressures; and actions by those participants—be it reporting inaccurate information or losing control of data (data breaches)—can have enduring consequences on consumers’ ability to obtain credit, secure housing, or land a job.
The number of complaints and disputes the CFPB receives in regard to consumer and credit reporting has led the agency to conclude that the market is increasingly failing to serve consumers, with potentially devastating consequences for consumers’ financial lives.
In turn, the CFPB is urging stakeholders in the system to consider alternatives akin to opening banking solutions that put consumers in charge of their own data.
The business consequences of inaccurate credit reporting
Now, it seems, many consumers are being forced to live with the consequences of inaccurate credit reporting. But this isn’t just a consumer concern. Businesses that consider credit scores in their decision-making process also risk overlooking otherwise creditworthy consumers who are simply a victim of inaccurate credit reporting. And if a business can’t trust the fidelity of credit reports, they can’t be confident in the decisions they’re making.
The alternative data approach
No doubt, credit scores can be a good starting point, but there are other indicators that can support—and even improve—a business’s capacity to make informed credit decisions.
At Argyle, we believe that credit bureau reports are just one piece of the puzzle, and that modern businesses need to turn to modern solutions for credit decisioning.
One of the most powerful of these is payroll connectivity. By connecting directly to consumers’ payroll records (with their explicit permission, of course), businesses gain streaming, real-time access to consumers’ detailed income and employment data. In comparison to credit scores, this data provides businesses with a much more comprehensive understanding of a consumer’s financial solvency. And because it comes straight from the system of record, it comes automatically verified and ready to inform any underwriting model.
Meanwhile, payroll connectivity offers consumers more visibility into the data businesses are seeing. And in the rare case of inaccuracies, consumers can seek more efficient and effective corrections through their employer rather than having to deal with the bureaucratic red tape of a nonresponse NCRA.
Simply powerful payroll connectivity
With hit rates 4-5 times higher than credit bureaus and 2-3 times higher than other income and employment data providers, Argyle is the leading platform for payroll connectivity. To learn how Argyle can help you overcome the shortcomings of credit reports and bolster your decisioning model, reach out to a member of our team, or sign up for an Argyle account to begin testing payroll connections today.